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Thesis & Antithesis

A critical perspective on energy, international politics & current affairs

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Location: Washington, D.C.

greekdefaultwatch@gmail.com Natural gas consultant by day, blogger on the Greek economy by night. Trained as an economist and political scientist. I believe in common sense and in data, and my aim is to offer insight written in language that is clear and convincing.

17 January 2007

Who will stand up for the market?

You have to sympathize with Neelie Kroes, the European Commissioner on competition. For years now she has been screaming loudly that the internal market on gas and electricity, supposedly liberalized and supposedly competitive, is dysfunctional, and that this is no small part because big European utilities are acting anti-competitively. A week ago, her Directorate released a comprehensive inquiry into the gas and power sector in Europe.

The report is enough to make any free marketer cringe. Big companies (“incumbents” as the Commission calls them) are stifling competition. They are able to do that because they have national governments on their side. Either socialist by inclination, or socialist because energy is a “strategic” sector not to be trusted on markets, or socialist because energy insecurity warrants new powers to be granted to government, states are engaged in an alliance with businesses at the expense of the consumer, who is sold the idea, unconvincing at best and ludicrous at worst, that it is really his interests that are being defended.

To be fair, there are certain problems that are fundamentally intractable. Long-term contracts, for example, are often necessary to finance big projects like cross-border pipelines, but they erect barriers to entry and “freeze” market conditions for years as well as adding illiquidity to a market since gas committed to one place cannot flow to another. Infrastructure is supposed to operate on open-access principles (capacity allocated by bidding rather than who owns an asset), but being guaranteed access to a pipeline is often needed before a company can sign deals abroad or commit the money to build expensive projects.

There are other problems too, problems that lie at the core of “Europe.” What is the appropriate level for regulation: at the state or at the European level? How should Europe balance a general commitment to the market (which the EC is meant to defend) with a commitment to democracy (which means states ought to make their own rules)?

What Europe faces, therefore, either than powerful incumbents, is an incomplete consensus on how to deregulate energy, made harder by the fact that each European country has its own view on how to do things and is willing to defend its sovereign right to act differently. Yet it is disheartened to think how all this is playing out. If the European Commission cannot succeed in infusing competition, what are we to think of its powers as the defender of the EU’s laws, and what are we to think of its commitment to the free market?

As I think of this, I am torn between two visions of Europe: one is a persistent, and to me indefensible, tendency to glorify cooperation and uniformity; the other is a Europe that helps member states do the things they are supposed to do by making the politics a bit easier. I have always liked Europe for the latter and criticized it for the former. What the European Commission is doing today on energy I approve and believe in; but it is not succeeding yet, and that makes me sad, both for what this means today and what it spells for the future.